Hansard – Superannuation

At the end of the motion, add “but the Senate condemns the Government for failing to take this opportunity to bring in much needed improved «safety» measures to ensure the «safety» of the «superannuation» savings of all Australians, in particular the need to:
(a) improve the compensation rules to include losses as a consequence of trustee negligence as an entitlement and make 100 per cent compensation available in cases of theft, fraud and negligence;
(b) provide compensation for unpaid «superannuation» guarantee contributions resulting from the failure of a business;
(c) remove unnecessary secrecy provisions that prevent people obtaining reasonable access to information from the Australian Tax Office on their claims for unpaid «superannuation» contributions;
(d) provide yearly reporting to members of defined benefit funds on the financial status of their funds including the debt or surplus level and the detail of the makeup in any shortfall of funds required to pay benefits to members; and
(e) make all «superannuation» contributions, including salary sacrifice contributions, payable on a quarterly basis in line with the payment of «superannuation guarantee contributions”.

1 March 2004

The Deputy President (Senator Hogg) tabled the following report and documents received on 19 February 2004:

Economics Legislation Committee—Provisions of the «Superannuation» «Safety Amendment Bill 2003—Report, dated February 2004, Hansard record of proceedings and submissions [13].

Wednesday, 13 September 2006 – Page: 109

Debate resumed from 7 September, on motion by Senator Minchin:

That this bill be now read a second time.

upon which Senator Stephens had moved by way of an amendment:
At the end of the motion, add

“but the Senate:

(a) notes that:

(i) given Australian workers and their families are:
(a) not provided with full compensation in the event of theft and fraud from a superannuation» fund, and
(b) not provided with compensation for the loss of statutory 9 per cent «superannuation» guarantee contributions in the event of employer insolvency under the General Employee Entitlements Redundancy Scheme (GEERS), even though GEERS does pay other statutory entitlements such as unpaid wages, accrued annual leave, long service leave, pay in lieu of notice and up to 16 weeks redundancy entitlement, and
(ii) given that «superannuation is compulsory, long-term and for retirement; and therefore

The government will not be accepting either of these two amendments moved by Labor and agreed to by the Senate. Amendment (26) deals with the 100 per cent compensation provision, inserting a requirement in the legislation for the government to provide financial assistance of 100 per cent for superannuation losses due to fraud or theft, and the government will reject the amendment.

Under part 23 of the Superannuation Industry (Supervision) Act 1993, the minister has discretion to grant compensation for losses as a result of fraudulent conduct or theft. In exercising this discretion, the minister may grant financial assistance up to 100 per cent of the determined eligible loss. Ministerial discretion ensures that public interest considerations can be taken into account when determining the level of financial assistance to be paid in the event of theft or fraudulent conduct. Within this framework, it has been long-standing government policy to cap financial assistance provided under part 23 of the SI(S) Act at 90 per cent of the eligible loss.

Payment of less than 100 per cent financial assistance seeks to address moral hazard concerns. In particular, it ensures that fund members bear at least some responsibility for any losses and have incentives to monitor their accounts and check that funds are being managed in a prudent manner. This approach also ensures that the costs of losses resulting from theft or fraudulent conduct are shared equitably between members of funds who have suffered losses and other superannuation fund members through financial assistance levies imposed on all funds.

Capping financial assistance is also consistent with international practice and other government assistance programs. Comparable overseas financial assistance schemes generally limit the compensation paid through either a percentage or a monetary cap. The United Kingdom Pensions Compensation Board limits payment of assistance to 90 per cent of loss suffered except where a person is within 10 years of retirement, where 100 per cent is paid. The OECD reports that countries such as Canada, the United States and France impose caps on payments, while Japan and the UK provide a percentage based limit on compensation.

The government considers that determining the level of financial assistance should continue to be implemented using the existing arrangements in part 23 of the SI(S) Act. This will ensure that appropriate flexibility in the operation of these provisions is retained. The Senate’s amendments to mandate the level of financial assistance would inappropriately limit the minister’s ability to take into account public interest considerations when applying government policy.

The government will not be supporting amendment (27) to the Superannuation Safety Amendment Bill 2003 requiring defined benefit funds to report annually to the Australian Prudential Regulation Authority on their financial position and requiring APRA to publish information concerning the financial position of defined benefit funds on its web site. The government considers that the current provisions provide appropriate protection to members and ensure that they have sufficient information upon which to make informed decisions about their superannuation.

The Financial Services Reform Act 2001 and associated regulation already requires information on the management financial position and investment performance of superannuation funds to be provided on at least an annual basis. This information includes audited fund accounts or abridged financial statements and details of fund reserves. In relation to defined benefit funds, trustees are also required to report to members when employer sponsor contributions are less than an actuarially approved amount. The trustee must also tell members of the consequences for the fund of the shortfall and what action the trustee will take in relation to the shortfall.

The Financial Services Reform Act also requires the ongoing disclosure of material changes and significant events to members of superannuation funds, which may include a significant event relating to solvency. In addition, members of the public may also request copies of the audited accounts of a superannuation entity. (Extension of time granted) In meeting a request, funds must also provide a copy of the auditor’s report, even if this has not been specifically requested.

The introduction of further reporting requirements for defined benefit funds would impose costs on both the funds and APRA for minimal, if any, additional benefit. These costs may make defined benefit funds less attractive to employer sponsors. Labor’s amendments would tie defined benefit funds up in further red tape for little or no benefit. The government is opposing the first amendment on the policy ground that it defeats an appropriate sharing of risk. We want to retain the muscle of scrutiny and accountability in the relationship between fund members and fund managers and we believe that the amendment will work to weaken that muscle. At the same time, we believe that there is already provision made for the objectives of the second amendment in the Financial Services Reform Act.

Mr COX (10:02 AM) —The shadow minister for retirement incomes will no doubt be disappointed by the government’s persistence in rejecting his amendments. The opposition will not be holding the bill up further in pursuit of these issues when it is returned to the Senate. However, the position that the Parliamentary Secretary to the Treasurer has outlined today clearly establishes a policy difference between the government and the Labor Party which we will take to the next election.

Question agreed to.

Mr ROSS CAMERON (Parliamentary Secretary to the Treasurer) (10:03 AM) —I present the reasons for the House disagreeing to Senate amendments (26) and (27). I move:

Senator SHERRY (11:09 AM) —We are considering the House of Representatives message with respect to a number of amendments that were successfully moved in the chamber to the Superannuation» «Safety» «Amendment» «Bill» «2003» . The original «bill» did not contain measures that were objectionable to the Labor Party, and we supported the «bill» . However, the original provisions in the «bill» fell way short of what the Labor Party consider adequate in terms of protecting the «safety» and the security of the retirement income system of Australians through «superannuation» .

On a previous occasion when we debated the «bill» , I made the point that Australians now have approximately $550 billion in «superannuation» savings. It is a substantial part of our retirement income system, together with the age pension. It is unacceptable in principle to the Labor Party that a «bill» dealing with the «safety» of «superannuation» does not provide for full compensation, for example, in circumstances where theft and fraud occur from an individual’s «superannuation» fund. The Labor Party have been arguing this principle for some years. It is now the policy of the Labor Party to ensure full compensation in the event of theft and fraud. It is not a matter that should be left to the discretion of the minister of the day, whoever that may be. There should be full compensation, which means 100 per cent, in the event of theft and fraud.

The Labor Party take the view that «superannuation» has a very special status. Obviously it is for retirement incomes. That gives «superannuation» in part its special status. It is moneys that accrue over a long period of time; it can be 30 or 40 years through a working life. In the event of theft occurring, it is quite catastrophic in its impact. We are talking here about «superannuation» savings that are now compulsory for Australian employees. «Superannuation» is now at a contribution level of nine per cent—thanks to the Australian Labor Party, which introduced compulsory «superannuation» in Australia. In the main, «superannuation» is now the compulsory element underpinning our «superannuation» savings system. So it is long term; it is for retirement.

«Superannuation» is complex. It is not easy for many in the community to understand its complexity. If your money is stolen prior to retirement, it is quite a catastrophic event. So «superannuation» has a unique purpose as a financial product in Australia’s finance system. It has a unique purpose for retirement savings, and it is also compulsory. If a person’s money is stolen—let us say they were in their 50s or 60s; whatever age they decide to retire—they could not simply go back and work in order to recover the moneys that were stolen. That is impractical. We know from the government’s recent announcement that they want Australians to work until they drop. The Labor Party do not support this policy. The Treasurer, Mr Costello, has said on a number of occasions that there will be no such thing as full-time retirement. He does not want people to stop working. That might appeal to some people in the community; it does not appeal to the Labor Party. We do not believe in the concept of `work until you drop’. We think it is impractical and unfair. Whatever the circumstances, it is grossly unfair that, if a person’s money is stolen as a result of theft and fraud, they will not be fully compensated. They should be fully compensated in those circumstances.

The minister has used her discretion and exercised the existing mechanism on a couple of occasions—the most well-known case being Commercial Nominees—to provide 90 per cent compensation. The Labor Party does not believe that is acceptable, given the circumstances I have outlined. It should be 100 per cent, and it should not be up to ministerial discretion. I am not criticising the minister personally in the case of Commercial Nominees, but I do not believe it is appropriate that a minister should be required to make those sorts of decisions about levels of compensation.

The Labor Party have adopted as policy the extinction of the compensation mechanism and applied it to a couple of other circumstances in «superannuation» . For example, there are some post-retirement products—annuities or pensions that people buy when they get to retirement—that are not covered by theft and fraud. If you are in retirement, we have the somewhat ironic situation where you may get no compensation if you have invested in a «superannuation» annuity pension product and your money is stolen. That is unacceptable to the Labor Party. Our new policy of full compensation in those circumstances is reflected in the second reading «amendment» . It is not reflected in an «amendment» to the «bill» we are considering the message on but, for the reasons I have already outlined, the Labor Party believe that full compensation should be provided.

The third area is where an employer goes out of business, goes bankrupt or the business fails. The Labor Party has adopted as policy that, where a business fails and there are outstanding «superannuation» contributions that the employer has not placed with the «superannuation» fund, there should be full compensation. The Labor Party argues that «superannuation» is a basic employee entitlement in this country now. Again, that is not reflected in the message or in the «bill» , but it is reflected in the second reading «amendment» that the Labor Party successfully moved on the previous occasion.

The Labor Party believes this is an absolutely fundamental issue of principle. It is Labor policy. The Labor Party will not back away from its amendments to the «bill» . Therefore, we will not support the request from the House of Representatives. I have no doubt that the minister will argue that the compensation that has been awarded in the circumstances of Commercial Nominees is adequate in the circumstances. She has advanced that argument on previous occasions. The Labor Party does not accept the Liberal government’s approach with respect to theft and fraud compensation. The theme, as put forward by the Liberal Party, is that there should effectively be a penalty if theft and fraud occur and that you should not fully compensate because otherwise you would have trustees, who are the guardians of our «superannuation» system, making irresponsible decisions—there would be less pressure on them to live up to their obligations as trustees and therefore full compensation should not be payable. I do not agree with that approach. I have outlined why theft and fraud should be covered fully.

The argument advanced by the Liberal government falls over for two basic reasons. Firstly, it is a trustee system. Therefore, why should we expect the individuals in the trust to bear part of the losses in the event of theft and fraud? If trustees are involved in theft and fraud, they may well end up in jail. There may well be part compensation payable, the trustees may well be sued and some moneys may be recovered from the trustees but, at the end of the day, that is not a big help to the victims, who in this case are members of a «superannuation» trust. They are a member of a «superannuation» trust because the Australian law requires them to be. There is no choice about being in the «superannuation» system; it is compulsory in Australia for employees. Even if we accept the theoretical argument about choice of «superannuation» funds, which may or may not be implemented in practice, the argument still holds that you are legally obliged to be in a «superannuation» fund. Whether or not you can choose which «superannuation» fund you want to be in is debate for another time but, even if that theory came to pass in practice, it is still compulsory. No matter what «superannuation» fund you choose to join, there should be full compensation in the event of theft and fraud.

I have not heard the latest news about what has happened to the trustees of Commercial Nominees and I do not know whether they have been successfully prosecuted. The minister may be aware of where the legal case is up to, but I do know that at least one of those trustees who, prima facie, was involved in theft and fraud at Commercial Nominees ended up in Guatemala, in Central America, in some exotic location from which extradition apparently is very difficult.

Senator SHERRY —That is good news. It would be even better news if we knew that the fellow that is in Guatemala, having been involved in the theft and fraud case of Commercial Nominees, was back in Australia. I hope he is in jail. The minister may be aware of where we are up to with the proceedings in that case.

I mention that one of the trustees ended up in this exotic location in Central America because, even if this individual is brought back to Australia and ends up in jail, that is not particularly satisfactory for the poor victims who had their money partly or wholly stolen. It might be useful, and important in terms of our system, that that individual should end up in jail if successfully prosecuted, but it is no great solace to the victims. The Labor Party are very clear: we think that it is a very important improvement to the «Superannuation» «Safety» «Amendment» «Bill» «2003» . The changes contained in the «bill» are modest. They are changes the Labor Party support, but we think fundamental to this issue of the future of retirement income systems and «superannuation» in Australia is full protection in the event of theft and fraud in the circumstances I have outlined. We will not be supporting the request from the House of Representatives to back down. The Labor Party have got a clear policy and we will not be backing down.

We have got a Liberal government that is weak—very weak indeed—when it comes to the protection of Australians’ retirement incomes. I do not think there is anything more fundamental than ensuring full compensation in the event of «superannuation» theft and fraud. In concluding, I would appreciate it if the minister has the detail of the case involving Commercial Nominees, and where that is up to, and if we could have some indication of when the regulations would be available if this «bill were to be passed.